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Monday, Dec 4, 2023

Experts Cautiously Optimistic About Area’s Economy

San Diegans can expect higher inflation, interest rates, housing costs, and more people next year.

But don’t despair; the local economy continues to grow and its gross regional product will break $100 billion.

These nuggets were just a smattering of the barrage of data disseminated at last week’s 2000 Economic Outlook Conference, sponsored by the Greater San Diego Chamber of Commerce.

For the some 200 people attending the event at the Wyndham Emerald Plaza, the two-hour presentation featuring a sea of bar charts and graphs may have provided some helpful insight.

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Kelly Cunningham, research manager for the chamber’s Economic Research Bureau, made his usual upbeat predictions, but even he concurred with the event’s previous speakers that the local economy, like the rest of the nation, is slowing.

Revised figures provided by Cunningham show the region’s gross regional product expanded 5.6 percent in 1998, using inflation-adjusted dollars.

Economic Clout

By the end of this year, the growth rate will be 5.2 percent. The estimate next year is 4.5 percent, a pace that should produce an annual gross product of $100.4 billion, up from this year’s $94.4 billion.

“If we were a country, we’d be the 37th-largest economy, or about the same size as the Philippines,” Cunningham said.

It wasn’t that long ago, he reminded listeners, this region and the rest of the state was in the depths of the worst recession since the Depression, experiencing several years of net job losses and net out-migration from the region.

San Diego has done such a successful job in restructuring its economy from primarily defense-related industries to commercial high-tech businesses that Cunningham is paid to travel to places like Germany to tell others about the region’s achievements.

With the local unemployment rate running about 3 percent for much of the year, there isn’t much further it can drop, yet Cunningham said it won’t rise that quickly and there will be more jobs than people to fill them.

In terms of potential pitfalls, rising interest rates were predicted by several economists in response to increased inflation.

Vernon Kozlen, executive vice president of City National Investments, said he expects the Federal Reserve Bank to boost its benchmark rate between 100 and 200 basis points over the year.

Fed Funds Hike

Rachael Chioino, senior regional economist for Standard & Poor’s DRI, said Fed Chairman Alan Greenspan will probably hike the Fed funds rate by a quarter-point when the board of governors meets this week.

Chioino said the higher rates and cost of money will dampen stock market prices and consumer spending, and will reduce business investment.

Rising mortgage rates will also curtail home sales and home construction, a key economic driver.

Chioino noted the state’s growth rate has already declined, due mostly to a huge cutback in exports to Asian markets because of the downturn in those economies.

The state’s annual GDP, now at 2.9 percent, should drop to 2.1 percent next year, and average 1.7 percent over the next five years.

Despite this sobering news, California should do fine, she said. The state’s economy shows particular strength in the phenomenon called “churning,” or the establishment of new businesses and failure of others. Churning is most readily apparent in the many new technology companies being formed, particularly those involved in doing business over the Internet.

While many states claim to have thriving high-tech industries, California is at entirely different level than anywhere else.

“This is the place where technology is created, not just built,” she said.

The concentration of high-tech industry here, along with the state’s apparently unlimited labor supply, sets California apart. The state enjoys a huge advantage over areas like Boston, which also has a developed high-tech sector but has a much tougher time attracting skilled workers, Chioino said.


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